JERUSALEM (Reuters) - Israeli and visiting U.S. forces are holding a biennial air-defense exercise this month but on a reduced scale, partly out of reluctance to stoke tensions with Iran, Israeli security sources said on Sunday.

They said the exercise, dubbed Juniper Cobra, this year involves fewer troops and advanced computer simulations -- rather than live-fire drills -- of anti-missile systems such as Israel's Arrow-II and the American-made Patriot PAC-3.

"Given the regional situation, especially with Iran, and other factors, we have opted for a much lower profile than previously," an Israeli security source said.

Israel and the United States accuse Iran of trying to produce nuclear weapons that could be mounted on long-range missiles. Iran insists its atomic ambitions are peaceful but has defied foreign demands that it curb projects with bombmaking potential.

The showdown has stirred speculation that Israel or the United States could mount military strikes on Iranian nuclear facilities, a move for which Tehran has vowed to retaliate.

Should Washington decide to go it alone against Iran, it may try to garner Arab support by keeping Israel out of the attack.

But continued forbearance by Israel, which is assumed to have the Middle East's only atomic arsenal, would hinge on the Jewish state feeling protected from any Iranian missile salvoes.

U.S. and Israeli officials described Juniper Cobra as routine and not intended to address a specific regional threat.

A U.S. army spokeswoman, Major Peggy Kageleiry, said the scale of the exercise was affected by equipping problems and Israel's war against Lebanese Hezbollah guerrillas last year.

"We ran out of time to plan a large live-fire operation," Kageleiry told American military affairs journal Defense News.

According to the report, this year's exercise marks the first time that Israel has tested the U.S. Terminal High Altitude Area Defense (THAAD) system, a counterpart to the Arrow, which destroys incoming missiles in the atmosphere.

The Israeli army declined to discuss Juniper Cobra in details, saying in a statement only that it is "part of a routine training cycle designed to validate interoperability of air defense systems."